Eva Case Study of Dabur India Limited
Vidyasagar University Journal of Commerce Vol.11, March 2006
EVA BASED PERFORMANCE MEASUREMENT: A CASE STUDY OF DABUR INDIA LIMITED
Debdas Rakshit*
ABSTRACT
Traditional measures of corporate performance are many in number. Measures using common bases are Net Profit Margin, Operating Profit Margin, Return on Investment (ROI), Return on Net Worth (RONW), Earning Per Share (EPS) etc. Among these, again ROI is recognized as the most popular yardstick of overall performance. But it is often argued that, in general, these traditional measures fail to identify the true surplus. Economic Value Added (EVA) is advocated as a new measure of corporate performance that focuses on clear surplus in contrast to the traditionally used profit based indicators. For evaluation of the efficiency of any decision, value creation or value addition aspect is of utmost importance in the present backdrop of corporate governance. Although adopting a holistic approach safeguarding the interests of all stakeholders is being emphasized and rightly so, it should be kept in mind that value creation or value addition aspect is of prime consideration in the assessment of the corporate policy guidelines. If that is not satisfied, wrong signals will be emitted from securities market and the continuance of the operations of the entity will be at stake. In view of the above considerations, in the present paper an attempt has been made to analyse the financial performance of Dabur India Limited by using EVA.
Introduction The term ‘Economic Value Added (EVA)’ is a registered trademark of Stern Stewart & Co. of New York City (USA). Bennett Stewart in his book, “The Quest for Value”, used the term EVA with a symbol ™ as super script, which is the normal practice of referring to any registered trademark whenever the term is used. Thus EVA is actually Stern Stewart & Co.’s trademark for a specific method of calculating economic profit. “The Quest for Value” was published in 1991. Peter Drucker claimed that
EVA BASED PERFORMANCE MEASUREMENT: A CASE STUDY OF DABUR INDIA LIMITED
Debdas Rakshit*
ABSTRACT
Traditional measures of corporate performance are many in number. Measures using common bases are Net Profit Margin, Operating Profit Margin, Return on Investment (ROI), Return on Net Worth (RONW), Earning Per Share (EPS) etc. Among these, again ROI is recognized as the most popular yardstick of overall performance. But it is often argued that, in general, these traditional measures fail to identify the true surplus. Economic Value Added (EVA) is advocated as a new measure of corporate performance that focuses on clear surplus in contrast to the traditionally used profit based indicators. For evaluation of the efficiency of any decision, value creation or value addition aspect is of utmost importance in the present backdrop of corporate governance. Although adopting a holistic approach safeguarding the interests of all stakeholders is being emphasized and rightly so, it should be kept in mind that value creation or value addition aspect is of prime consideration in the assessment of the corporate policy guidelines. If that is not satisfied, wrong signals will be emitted from securities market and the continuance of the operations of the entity will be at stake. In view of the above considerations, in the present paper an attempt has been made to analyse the financial performance of Dabur India Limited by using EVA.
Introduction The term ‘Economic Value Added (EVA)’ is a registered trademark of Stern Stewart & Co. of New York City (USA). Bennett Stewart in his book, “The Quest for Value”, used the term EVA with a symbol ™ as super script, which is the normal practice of referring to any registered trademark whenever the term is used. Thus EVA is actually Stern Stewart & Co.’s trademark for a specific method of calculating economic profit. “The Quest for Value” was published in 1991. Peter Drucker claimed that
References: Easton, P., Harris, T. & Ohlson, J. (1992), “Aggregate Earnings can explain most security returns”, Journal of Accounting and Economic, June – September. Ghosh, T.P. (1999), Economic Value Added Publication, July. TM : A tool for Business Planning, ICWAI Mallik, A.K. and Rakshit, D. (2005), “ EVA–Based Segmental Reporting: A Case Study”, Research Bulletin, January, pp.12-27. Ray, Russ (2001), “Economic Value Added: Theory Evidence, A Missing Link”, Review of Business, Vol. 22, No. 2, Summer 2001. Stewart, G. Bennett (1994), “EVA TM: Fact and Fantasy”, Journal of Applied Corporate Finance, Summer, Vol. 7, No. 2, 1994, pp. 71-84. http://www.Sternstewart.com. http://www.bham.ac.uk/EAA/eaa97/abstracts/guenther.html. Vidyasagar University Journal of Commerce 59